Student Loan Grace Periods

You've graduated college - congratulations! You made it! As you get adjusted to life in the "real world," you’re also probably starting to think about the reality of dealing with your student loan payments.

You may have heard about repayment grace periods. But do you know what they are and how they can affect you? Here’s a quick overview.

What is a grace period?

This is an amount of time after graduation, separation from school, or dropping below half-time enrollment, when you can put off making a payment on your loan without being penalized. For most loans, the grace period is six months. Sounds good, right? You’ve just graduated, you’re trying to navigate packing, moving and maybe a new job. Who wouldn’t want to put off making loan payments for a little while longer?

But even though you could put off your first payment without a direct penalty, there could still be a penalty of sorts: interest. According to the U.S. Department of Education, interest will be added to most loans during the grace period.

Does my loan have a grace period?

Direct subsidized loans

Yes

Direct unsubsidized loans

Yes

Direct PLUS loans*

No

Perkins loans

Check with your school

Private loans (depends on the lender)

Generally yes

*Note: According to the Office for Federal Student Aid, repayment on PLUS loans typically starts as soon as a loan is completely disbursed.

What difference could six months of interest make?

Calculations done by CNBC show that just six months of debt could add in the neighborhood of $1000 to the total cost of a loan on a typical undergraduate balance and $2225 on a grad school bill. (Click through for a full review of the math). And those figures are for government-funded loans; a private loan could have a higher interest rate.

Is there anything that can change the length of the grace period?

According to the Office of Federal Student Aid, the grace period can be extended if you’re called to active military duty or re-enroll in school before the grace period ends. If you opt to take a position with AmeriCorps, you can request something called forebearance on your federally guaranteed loans. This means you don’t have to make payments while serving your AmeriCorps term. You will be charged interest during this time, but the National Service Trust will pay some or all of the interest accrued during your service period with AmeriCorps (if you finish your term).

And watch out for loan consolidation of any federal student loans. If you decide to roll multiple loans into one consolidated loan—which can definitely have advantages and is the subject for another post—you’ll lose whatever portion of your grace period is left after your consolidation loan is disbursed.

How’s that grace period looking now?

If you simply don’t have the money to begin making your student loan payments, you might have to take advantage of the grace period. But if you can afford to start making payments as soon as you’re done with school, that might be the better path in the long run.